By Liu Qinghai and Li Qunxing |
Updated: 2018-02-09 08:48
China-Africa infrastructure cooperation faces challenges, but these can be addressed by action on both sides
For a long time, China has been actively participating in the construction of infrastructure in Africa. Under the Belt and Road Initiative, infrastructure cooperation between China and Africa has become even more important. For example, Chinese contractors completed the $3.4 billion, 750-kilometer Ethiopia-Djibouti Railway in 2016, and the $3.8 billion (3.1 billion euros; ￡2.7 billion), 750-kilometer standard gauge railway in Kenya in 2017. China is by far the largest bilateral infrastructure financier in Africa and commands around 50 percent of Africa's internationally contracted construction market. There is no other country with such depth and breadth of engagement in African infrastructure.
How is China engaging?
Specifically, Chinese companies participate in the construction of African infrastructure in four ways:
1. Government aid. The Chinese government provides interest-free loans to help African governments build infrastructure such as highways, bridges, dams, power plants, gyms and conference centers. Generally, after they have been proposed by African government departments, the Chinese government will commission experts to evaluate projects. If it agrees, it will invite Chinese companies to tender for construction, and the enterprise that wins will be responsible for carrying out the project.
2. Undertaking contracted projects. Through various channels, such as public bidding or negotiation bidding, Chinese companies undertake contracted projects funded by local governments, the World Bank, the African Development Bank or other international organizations.
3. Engineering, procurement and construction plus financing projects. The Chinese government accepts host governments' applications to provide loan projects (namely "China foreign preferential loan" and "preferential export buyer credit" projects). Chinese enterprises are responsible for design and construction. Such projects are generally agreed upon by Chinese companies and the host government. Chinese companies are responsible for construction but not for repayment.
4. Chinese companies invest in construction projects. The Chinese government and policy banks support Chinese enterprises' cooperation with foreign companies and governments to invest in the construction projects. A pure business model, the government does not make loans or provide a guarantee. Though appearing only in recent years, such projects had reached a value of $11.3 billion by the end of 2016, accounting for 28.3 percent of China's direct investment in Africa.
What is the benefit?
According to a McKinsey report in October 2017, in addition to job creation and improved infrastructure, half of the Chinese companies in Africa have introduced a new product or service to the local market, and a third have introduced new technology. In some cases, Chinese companies have lowered prices for existing products and services by as much as 40 percent through improved technology and efficiencies of scale. African government officials overseeing infrastructure development for their countries cite Chinese enterprises' efficient cost structures and speedy delivery as major benefits. Obviously, with Africa lacking infrastructure, such cooperation is very important to industrialization and sustainable economic development.
As for China, the benefit varies considerably from project to project, place to place and time to time. Generally speaking, with government-aided projects, not much attention is paid to the return. African countries do not seem to have a high rate of repayment to China of interest-free loans, many of which need to be extended or reduced. For concessional loan projects, being operated by governments on both sides, the repayment situation is generally better.
The average economic growth rate of African countries has exceeded 5 percent, and many of them have good fiscal revenue. Competition between construction companies was relatively less intense from 2001 to 2014, and quite a few Chinese infrastructure companies in Africa got a good return, especially in countries where economic stability was growing relatively well. However, having been affected by sluggish commodity prices and the global economic situation, African economies have slowed down and their capacity for payment has not been sufficient since 2015. As competition becomes more fierce, many Chinese infrastructure enterprises in Africa don't get a good return. On the other hand, considering cooperation can transfer excess capacity or make use of idle capacity, the benefit is still good for China at a national level.
What are the challenges?
Chinese enterprises in Africa face many challenges, such as lack of familiarity with international and local standards, not understanding the local culture, market issues, personal safety, language and culture difficulties, management problems, power, finance and accessory supplies. Among these, the biggest challenge might be that they don't know how to integrate themselves into local society. For example, how can local unemployed people be persuaded that Chinese companies are not grabbing their jobs? How can local companies be convinced that Chinese companies are not undercutting their businesses? For the Chinese, there have been challenges of countering urban myths and sensational stories - everything from charges of neocolonialism to persistent yet unfounded rumors that Chinese companies use convict labor.
Work together to strengthen cooperation
Obviously, if the above challenges are left unaddressed, misunderstandings and potentially serious long-term social issues could weaken the overall sustainability of the Africa-China relationship.
To overcome these challenges, Chinese enterprises in Africa should strive to learn the local culture, labor laws and policies, employ more locals - including senior executives - as much as possible, and strengthen communication with local people.
At the same time, they should try to fulfill their social responsibility and contribute more to the development of local society, as well as completing projects on schedule with good quality. China should also encourage cross-culture management. For their part, African governments should urgently address such challenges as corruption and personal safety.
To ensure infrastructure cooperation between Africa and China grows sustainably and delivers strong economic and social outcomes, the most important thing is to address the gaps in the partnership.
Africa and China should jointly promote cultural exchanges, address corruption in some countries, improve the safety situation and promote a greater role for African managers and partners in the growth of Chinese-owned businesses. Everyone - African or Chinese, government or private sector - has a role to play in realizing the promise of the Africa-China infrastructure partnership.
Liu Qinghai is head of the Center for African Economic Studies at the Institute of African Studies at Zhejiang Normal University; Li Qunxing is a doctoral candidate at the Research Center on French-Speaking Countries at Wuhan University. The views do not necessarily reflect those of China Daily.
This article was published on China Daily European Weekly on Feb 9, 2018.
China-Africa infrastructure cooperation faces challenges, but these can be addressed by action on both sides
For a long time, China has been actively participating in the construction of infrastructure in Africa. Under the Belt and Road Initiative, infrastructure cooperation between China and Africa has become even more important. For example, Chinese contractors completed the $3.4 billion, 750-kilometer Ethiopia-Djibouti Railway in 2016, and the $3.8 billion (3.1 billion euros; ￡2.7 billion), 750-kilometer standard gauge railway in Kenya in 2017. China is by far the largest bilateral infrastructure financier in Africa and commands around 50 percent of Africa's internationally contracted construction market. There is no other country with such depth and breadth of engagement in African infrastructure.
How is China engaging?
Specifically, Chinese companies participate in the construction of African infrastructure in four ways:
1. Government aid. The Chinese government provides interest-free loans to help African governments build infrastructure such as highways, bridges, dams, power plants, gyms and conference centers. Generally, after they have been proposed by African government departments, the Chinese government will commission experts to evaluate projects. If it agrees, it will invite Chinese companies to tender for construction, and the enterprise that wins will be responsible for carrying out the project.
2. Undertaking contracted projects. Through various channels, such as public bidding or negotiation bidding, Chinese companies undertake contracted projects funded by local governments, the World Bank, the African Development Bank or other international organizations.
3. Engineering, procurement and construction plus financing projects. The Chinese government accepts host governments' applications to provide loan projects (namely "China foreign preferential loan" and "preferential export buyer credit" projects). Chinese enterprises are responsible for design and construction. Such projects are generally agreed upon by Chinese companies and the host government. Chinese companies are responsible for construction but not for repayment.
4. Chinese companies invest in construction projects. The Chinese government and policy banks support Chinese enterprises' cooperation with foreign companies and governments to invest in the construction projects. A pure business model, the government does not make loans or provide a guarantee. Though appearing only in recent years, such projects had reached a value of $11.3 billion by the end of 2016, accounting for 28.3 percent of China's direct investment in Africa.
What is the benefit?
According to a McKinsey report in October 2017, in addition to job creation and improved infrastructure, half of the Chinese companies in Africa have introduced a new product or service to the local market, and a third have introduced new technology. In some cases, Chinese companies have lowered prices for existing products and services by as much as 40 percent through improved technology and efficiencies of scale. African government officials overseeing infrastructure development for their countries cite Chinese enterprises' efficient cost structures and speedy delivery as major benefits. Obviously, with Africa lacking infrastructure, such cooperation is very important to industrialization and sustainable economic development.
As for China, the benefit varies considerably from project to project, place to place and time to time. Generally speaking, with government-aided projects, not much attention is paid to the return. African countries do not seem to have a high rate of repayment to China of interest-free loans, many of which need to be extended or reduced. For concessional loan projects, being operated by governments on both sides, the repayment situation is generally better.
The average economic growth rate of African countries has exceeded 5 percent, and many of them have good fiscal revenue. Competition between construction companies was relatively less intense from 2001 to 2014, and quite a few Chinese infrastructure companies in Africa got a good return, especially in countries where economic stability was growing relatively well. However, having been affected by sluggish commodity prices and the global economic situation, African economies have slowed down and their capacity for payment has not been sufficient since 2015. As competition becomes more fierce, many Chinese infrastructure enterprises in Africa don't get a good return. On the other hand, considering cooperation can transfer excess capacity or make use of idle capacity, the benefit is still good for China at a national level.
What are the challenges?
Chinese enterprises in Africa face many challenges, such as lack of familiarity with international and local standards, not understanding the local culture, market issues, personal safety, language and culture difficulties, management problems, power, finance and accessory supplies. Among these, the biggest challenge might be that they don't know how to integrate themselves into local society. For example, how can local unemployed people be persuaded that Chinese companies are not grabbing their jobs? How can local companies be convinced that Chinese companies are not undercutting their businesses? For the Chinese, there have been challenges of countering urban myths and sensational stories - everything from charges of neocolonialism to persistent yet unfounded rumors that Chinese companies use convict labor.
Work together to strengthen cooperation
Obviously, if the above challenges are left unaddressed, misunderstandings and potentially serious long-term social issues could weaken the overall sustainability of the Africa-China relationship.
To overcome these challenges, Chinese enterprises in Africa should strive to learn the local culture, labor laws and policies, employ more locals - including senior executives - as much as possible, and strengthen communication with local people.
At the same time, they should try to fulfill their social responsibility and contribute more to the development of local society, as well as completing projects on schedule with good quality. China should also encourage cross-culture management. For their part, African governments should urgently address such challenges as corruption and personal safety.
To ensure infrastructure cooperation between Africa and China grows sustainably and delivers strong economic and social outcomes, the most important thing is to address the gaps in the partnership.
Africa and China should jointly promote cultural exchanges, address corruption in some countries, improve the safety situation and promote a greater role for African managers and partners in the growth of Chinese-owned businesses. Everyone - African or Chinese, government or private sector - has a role to play in realizing the promise of the Africa-China infrastructure partnership.
Liu Qinghai is head of the Center for African Economic Studies at the Institute of African Studies at Zhejiang Normal University; Li Qunxing is a doctoral candidate at the Research Center on French-Speaking Countries at Wuhan University. The views do not necessarily reflect those of China Daily.
This article was published on China Daily European Weekly on Feb 9, 2018.
